EV Duty Structure Needs Correction: Industry

New Delhi, Jan 15 (PTI) There is a need to correct inverted duty structures for electric vehicle makers, in addition to providing EVs with a clear GST advantage, including for charging infrastructure and services and battery swapping, industry players said ahead of the Union Budget.

While EVs continue to attract 5 per cent GST, the GST rate changes for internal combustion engine (ICE) segments in GST 2.0 have narrowed the price gap, thereby making ICE more attractive from a total cost of ownership perspective.

"GST on EVs and chargers remains at 5 per cent, but critical components such as power electronic components, magnetic cores, etc. are still taxed at 18 per cent, creating a clear cost imbalance for domestic manufacturers," Zenergize Co-founder & CEO Navneet Daga said.

Aligning these GST rates and broadening government schemes, such as PM e-Drive, to also cover charging infrastructure costs would significantly enhance the overall market impact on India's EV ecosystem, he added.

Expressing similar views, Deloitte India Partner, Rajat Mahajan, said, "EV manufacturers in India continue to face challenges under the inverted duty structure (IDS), as the GST rate on electric vehicles is only 5 per cent, while most key inputs and components attract significantly higher rates.

This disparity leads to the accumulation of input tax credit and working capital strain."

After the overhaul of the GST rate structure from September 22 2025, while the tax rate on parts and components was reduced from 28 per cent to 18 per cent, it provides partial relief to EV manufacturers, as the tax rate disparity persists for critical inputs compared to finished goods, he explained.

Further, the non-availability of a refund under IDS on ITC attributable to capital goods continues to add to the cost of production, given the capital-intensive nature of the EV industry, Mahajan said.

"Considering the government's intent to rigorously promote electrification and localised manufacturing of EVs, necessary steps should be taken to create a conducive environment for EV manufacturing in the country," he noted.

EY India Partner and Automotive Tax Leader Saurabh Agarwal said that accelerating EV adoption in India, at a time when ICE vehicles are regaining momentum under GST 2.0 and global trade tensions are rising, requires steady, well-balanced policy support.

"EVs continue to attract a 5 per cent GST, but recent rate changes for some ICE segments have narrowed the gap. It is therefore important to protect a clear GST advantage for EVs, including on charging infrastructure, charging services, and battery swapping, to keep EVs affordable and investments viable," he added.

Agarwal also said demand incentives under PM E-DRIVE should remain focused on segments where electrification delivers the maximum impact on public transport, shared mobility, commercial fleets, and last-mile delivery.

"Faster adoption in these areas is essential to meeting the 30 per cent EV penetration target by 2030," he said.

On the supply side, Agarwal said duty exemptions on critical battery inputs should continue until domestic cell manufacturing under the PLI scheme reaches scale, especially in an uncertain global tariff environment.

Strong state support through demand, supply, and R&D incentives is also essential to sustain EV affordability, innovation, and long-term adoption momentum, he added.